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A multilevel index of heterogeneous short-term and long-term debt dynamics

Maria Bontempi (), Laura Bottazzi () and Roberto Golinelli ()

Journal of Corporate Finance, 2020, vol. 64, issue C

Abstract: We have created a novel index that classifies U.S. public firms by their leverage choice. Our statistical approach to the construction of this index considers the interaction of all firm characteristics and unpredictable events that shapes the observed leverage choices. We have subsequently associated our estimates of the degree and persistence of short-term and long-term debt fluctuations with pecking-order, market-timing, and static and dynamic trade-off theories. Our index reveals that: (i) one-third of firms have a stationary leverage target, (ii) adjustments to targets are faster for short-term debt, and (iii) the persistence of long-term debt ratios is driven by investment constraints and market conditions.

Keywords: Corporate capital structure; Firms' heterogeneity; Short- and long-term debt ratios; Speed of adjustment; Panel data; Unit roots and cointegration (search for similar items in EconPapers)
JEL-codes: C33 C52 G30 G32 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.jcorpfin.2020.101666

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